The Liberity Times Editorial: FSC’s Koo living up to expectations

Financial Supervisory Commission (FSC) Chairman Wellington Koo (顧立雄) has not failed public expectations. When he transferred from the chairmanship of the Ill-gotten Party Assets Settlement Committee to the commission in September last year, there was some opposition within the financial sector, but there was wider support for the view that only an outsider would be able to reform the financial system and resolve long-standing issues such as the problem of “the financial clique” — retired commission and Ministry of Finance officials working in government-invested financial institutions.

Last week in the Legislative Yuan, Koo said that it is very “inappropriate” for government officials retired from financial supervisory authorities to serve as board directors or in the management of financial and banking institutions, as this is tantamount to retired financial supervisors joining the ranks of the supervised.

He also said that the commission would not assign retired officials to the boards or management of financial institutions in which the government holds shares. Koo’s statement was a clarion call for the destruction of the financial clique, which makes him unique.

The financial clique has been criticized because high-ranking officials in financial authorities are often “transferred” to the management of financial or banking institutions upon retirement, regardless of their previous performance or their expertise and professional experience. They form cliques that have long held sway over Taiwan’s financial sector.

Not only are their manipulations “unsightly,” they also contravene basic professional ethics, obstructing Taiwan’s financial development and impeding its international competitiveness. Flawed financial supervision and numerous scandals over the past few years have shown the deep and complex relations of the clique, in which members shield one another.

The financial clique is a remnant of the party-state regime and a product of half-cooked financial liberalization. It can be traced back to the post-World War II foreign regime, which took over public banks and forced the incorporation of Chang Hwa Bank (CHB) and other private banks into a “provincial banking system” by expropriating stakes formerly held by Japanese shareholders.

Banking services were a privileged business requiring special permission, and only those who enjoyed good relations with the party-state were allowed to run banks. Just as with the ban on newspapers, there was a banking ban during the authoritarian era, and it was not lifted until the economic liberalization of the 1990s.

However, even following liberalization, high-ranking officials from financial authorities and political figures have been unwilling to relinquish control over financial institutions. Their possessive mindset has manifested in the much-criticized appointments of retired government officials to the management of financial or banking institutions and reflected the paradoxical nature of the privatization of public banks.

The so-called “privatization” has only meant that the government no longer owns a majority of shares in the banks, not that the shareholding structure and management have been handed over to the private sector.

To make things worse, financial authorities — now holding a minority share — have fought forcefully to maintain operational control of banks by buying up powers of attorney.